Texas Instruments 2015 Annual Report Download - page 22

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FORM 10-K
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
We design, make and sell semiconductors to electronics designers and manufacturers all over the world. Our business model is
carefully constructed around several advantages that are unique to TI:
•฀ Industry’s broadest portfolio of differentiated analog and embedded processing semiconductors. Our customers’ design
engineers need at least one, and most times multiple, chips for their systems. The breadth of our portfolio means we can solve
more of these needs than can our competitors, which gives us access to more customers and the opportunity to generate more
revenue per system. We invest more than $1 billion each year to develop new products for our portfolio.
•฀ A strong foundation of manufacturing technology and low-cost production. We invest in manufacturing technologies that
differentiate the features of our semiconductors, and we do most of our own production in-house as opposed to outsourcing it.
This ability to directly control our manufacturing helps ensure a consistent supply of products for our customers. We produce
billions of semiconductors each year on a mixture of 150-, 200- and 300-millimeter wafers, and we are able to keep costs low
for manufacturing facilities and equipment because our analog and much of our embedded processing semiconductors can
be made using mature assets that we acquire ahead of demand when their prices are most attractive. In 2014 we produced
approximately 25 percent of our Analog semiconductors on 300-millimeter wafers, the industry’s largest wafers, which have a
40 percent cost advantage per unpackaged chip over 200-millimeter wafers. T he majority of our future Analog growth will be
produced on 300-millimeter wafers, which will be meaningful to the growth of our margins and cash flow over the long term.
•฀ Industry’s largest market channels. Our global sales force is larger than those of our competitors, and the breadth of our portfolio
attracts tens of millions of visits to our web site each year where customers often begin their initial product searches and
design-in journey. T hese capabilities combine to provide us unique access to more than 100,000 customers.
•฀ Diversity and longevity in our products and in the markets we serve. Together, the advantages above result in diverse and long-
lived positions that deliver high terminal value to our shareholders. Because of the breadth of our portfolio we are not dependent
on any single product, and because of the breadth of our markets we are not dependent on any single application or customer.
Some of our products generate revenue for decades, which strengthens the return on our investments.
These advantages have resulted in consistent share gains and free cash flow growth, and they put us in a unique class of companies
with the ability to grow, generate cash, and return that cash to shareholders.
Management’s discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with
the financial statements and the related notes that appear elsewhere in this document. In the following discussion of our results
of operations:
•฀ All dollar amounts in the tables are stated in millions of U.S. dollars, except per-share amounts.
•฀ When we discuss our results:
○Unless otherwise noted, changes in our revenue are attributable to changes in customer demand, which are evidenced by
fl uctuations in shipment volumes.
○New products tend not to have a signifi cant impact on our revenue in any given period because we sell such a large number
of products.
○From time to time, our revenue and gross profi t are affected by changes in demand for higher-priced or lower-priced
products, which we refer to as changes in the “mix” of products shipped.
○Because we own much of our manufacturing capacity, a signifi cant portion of our operating cost is fi xed. When factory
loadings decrease, our fi xed costs are spread over reduced output and, absent other circumstances, our profi t margins
decrease. Conversely, as factory loadings increase, our fi xed costs are spread over increased output and, absent other
circumstances, our profi t margins increase. Increases and decreases in factory loadings tend to correspond to increases and
decreases in demand.
•฀ Our segments represent groups of similar products that are combined on the basis of similar design and development
requirements, product characteristics, manufacturing processes and distribution channels, and how management allocates
resources and measures results. See Note 1 to the financial statements for more information regarding our segments.
•฀ Our exit from legacy wireless products and the elimination (effective January 1, 2013) of the Wireless segment resulted in
changes to our corporate-level expense allocations, which negatively affected Analog and Embedded Processing profitability in
the year ended December 31, 2013 and, to a less significant extent, in 2014. We allocate our corporate-level expenses, which
are largely fixed, among our product lines in proportion to the operating expenses directly generated by them. Legacy wireless
products generated lower operating expenses in 2014 and 2013 than in 2012 because we stopped investing in them. The